A novated lease quote can contain several cost measures that look similar but answer different questions. The finance nominal annual rate, effective annual rate, finance charges and salary-packaging costs should be separated before you compare quotes.
Use the Novated Lease Interest Rate Calculator if the quote provides a rental but not a clear rate.
Nominal annual interest rate
If the lease is genuinely calculated monthly, a monthly periodic rate multiplied by 12 gives the nominal annual rate. For example, 0.75% per month corresponds to 9.00% nominal p.a.
The nominal rate is useful because it describes the finance pricing convention without adding the effect of compounding into the headline number.
Effective annual rate
The effective annual rate answers a different question: what annual rate reflects periodic compounding?
For monthly compounding:
EAR = (1 + monthly rate)^12 - 1
A 9.00% nominal rate with monthly compounding therefore has an effective annual rate above 9.00%.
Why we do not label the result a comparison rate
Australian statutory comparison-rate rules are product- and disclosure-specific. A reverse-engineered effective annual rate from lease cash flows is not automatically a statutory comparison rate. The GPS calculator deliberately labels the outputs as nominal annual rate and effective annual rate.
Finance rate is not the whole novated lease cost
A quote can also contain:
- finance establishment charges;
- PPSR charges;
- salary-packaging administration fees;
- insurance costs or administration;
- registration and CTP budgets;
- servicing and tyre budgets;
- fuel or charging budgets.
Some of these are actual fees. Others are budget provisions for costs you would incur while operating the car. Treating every budget item as a provider “fee” gives a misleading comparison.
Read Novated Lease Fees Explained for a category-by-category checklist.
Compare quotes on matching cash flows
If Quote A and Quote B use different vehicle prices, residuals, terms or rental counts, the finance rates are not being compared on the same transaction. Reconcile those inputs first.
Then use How to Compare Two Novated Lease Quotes Properly.
Calculate the rate or rental: use the novated lease finance calculator.
About the author: KK Neelamraju is a finance and credit professional and an Authorised Credit Representative through GPS Finance Group.
GPS Finance Group (CRN 000575797) is an Authorised Credit Representative of AFAS Group Pty Ltd (ACL 414426). AFCA Member ID 119860. General information only. Credit approval and pricing are subject to lender assessment. Tax-sensitive information should be checked against current ATO guidance and, where appropriate, with a qualified tax adviser.
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